KLM Hopes to Retain Open Access to Lucrative London Market After Brexit

Christopher Jasper, Bloomberg

- Apr 06, 2017 6:30 pm

Skift Take

The London market is vital to all of Europe’s big airlines, so KLM is not alone. To keep their profits up, all the carriers need access to the lucrative market, so let’s hope that after Brexit Britain joins the European Common Aviation Area.

KLM has held talks with the Dutch government about the split and made clear the importance of safeguarding U.K. operations, Chief Executive Officer Pieter Elbers said Wednesday. Britain is the carrier’s second-biggest market with 6 million annual seats on flights to 17 airports including London City, which it will serve eight times each weekday from May 15.

“The delicate balance we need to find here is how we keep the European philosophy alive and yet not create a situation which is going to be bad for business,” Elbers said in London. Discussions with Dutch authorities include “mapping what could be possible scenarios and possible ways to go forward.”

Elbers, whose company is a unit of Paris-based Air France-KLM Group, said that while there is a “goal of best possible access to European markets,” the key issue concerns the legal structures involved and whether Britain will join the European Common Aviation Area or resort to bilateral agreements of the type it last had with the Netherlands in the 1960s.

‘Pragmatic’

Shares of Air France-KLM fell as much as 1.6 percent and traded 0.5 percent lower at 7.09 euros as of 11:04 a.m. in Paris. They’re up 37 percent this year.

The CEO said that Britain had played a valuable role in securing European air-services agreements with outside countries and in pushing for reforms such as the Single European Sky air-navigation zone, and would therefore be missed as a “straightforward, pragmatic” partner. For that reason, he said, Brexit is something “not very much welcomed” by KLM.

Britain is especially important to KLM because of its focus on transporting passengers from around the world via Amsterdam’s Schiphol hub, with 80 percent of the carrier’s customers non-Dutch. It also has more connecting flights from the U.K. provinces than British Airways, whose London Heathrow base is served by a limited number of shuttle services from northern Britain.

Flights to London City will increase from the current four a day as KLM’s Cityhopper arm leases two BAE Systems Plc RJ85 regional planes from Ireland’s CityJet Ltd. to supplement its own service using Embraer SA 190s. KLM resumed City flights in February after an eight-year absence.

The impact of last year’s Brexit vote on U.K. demand has been limited, with only a “marginal” reduction in the number of British travelers, Elbers said. New destinations, including Inverness in Scotland and Southampton on England’s south coast, are performing well and others are planned.

Air France Concern

KLM understands the concerns that workers and politicians have expressed about the unit’s position within Air France-KLM, Elbers said in an interview at the U.K. Aviation Club, adding that aviation’s “relevance and importance” within the Dutch economy is “enormous,” supporting 260,000 jobs.

Air France’s unions have attracted the ire of KLM counterparts, angry at the impact of walkouts on a group formed via a merger in 2004. The concerns entered the political arena when Dutch ministers warned new chief Jean-Marc Janaillac not to pander to the French pilots at the expense of growth at KLM.

“I understand these concerns and I think it’s up to us as management to find a good balance in addressing them,” Elbers said. “These are concerns we should take very seriously.” KLM has had “a couple of discussions” about the situation with both government and Air France-KLM, he said.

At the same time, KLM is happy with its status within the group and hasn’t been hampered in its ability to add new routes or planes, the executive said.

The carrier has taken delivery of eight out of 21 Boeing Co. 787 Dreamliners on order, while the first of seven Airbus Group SE A350s will join the fleet from 2020, by which time 17 747 jumbos still in service should have been phased out, Elbers said. The last of Cityhopper’s Dutch-built Fokker 70s will also be retired this September, replaced by more Embraer planes.